One of the nearest real-world examples of Oil-to-Cash is Alaska, which has paid an annual dividend to every state resident since 1982. One of the presumptive lessons drawn from Alaska’s experience has been that once a dividend was in place, political forces aligned to protect it from politicians. Yet last week, Alaska Governor Bill Walker announced the first-ever cut to the Alaska Permanent Fund dividend. The battle now moves to the legislature, which next week may try to vote to override the veto. Here’s why CGD is also watching.
Our Oil-to-Cash proposal lays out a policy option for governments experiencing resource windfalls: pay a portion of the revenue directly to citizens. Several countries have taken steps toward the model, such as Mexico with its prospera program or Saudi Arabia’s new cash transfer scheme, while Mongolia’s attempt at a mining-linked dividend has largely faltered.
One of the rationales for Oil-to-Cash is that a regular, universal cash transfer linked to revenues would create incentives for citizens to pay attention and build a constituency for better revenue management. In Alaska, every resident receives an equal share of half of the five-year average earnings of the state’s sovereign wealth fund, which is itself funded by 25 percent of all incoming oil royalties. In 2015, Alaskans each received a check of $2,072. The dividend seems to have helped to generate an unusually high level of public interest in fiscal issues. This was the vision of Governor Jay Hammond, the architect of the fund, who believed the dividend would ensure that citizens prevented his successors from raiding state savings or even changing the dividend formula. For 34 years, Hammond’s prediction has held.
Until, perhaps, 2016. Governor Walker, facing plummeting oil revenues and a large budget deficit, last week announced a slew of vetoes to the state budget, including capping the dividend at $1,000, a roughly 50 percent cut from the current formula. The battle now moves to the state legislature, which is holding a second special session beginning July 11 where lawmakers may try to override his vetoes. The proposed cuts could also wind up in court, as there are questions over the legality of the governor’s moves and no guiding case law on the matter. Will public interest and outrage over the proposed restructuring of the fund force legislators to reverse the governor’s action? Has Governor Walker committed political suicide? Find not-so-supportive comments from legislators here and here.
We will be watching closely what happens next in Juneau. So too, we suspect, will policymakers and citizens in Mexico, Mongolia, Saudi Arabia, and other resource-rich countries.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.